Low oil prices sting Legacy Fund
BISMARCK -- North Dakota's trust fund for oil and gas tax revenues could take a $212 million hit if slumping crude oil prices linger through June 2017, state lawmakers were told Wednesday as they continued to debate how much of the Legacy Fund's ...
BISMARCK - North Dakota's trust fund for oil and gas tax revenues could take a $212 million hit if slumping crude oil prices linger through June 2017, state lawmakers were told Wednesday as they continued to debate how much of the Legacy Fund's earnings should be available to spend.
Oil prices down by more than 50 percent from a year ago have slowed growth of the fund, which receives 30 percent of state taxes on oil and gas production and extraction.
From August through November of this year, collections totaled $170 million, down 43 percent from the $297 million collected during the same period in 2013.
Lawmakers can't tap the more than $3.4 billion fund until the 2017 session. Some favor a no-spending approach to both the earnings and principal, the latter requiring two-thirds majority approval from both chambers.
Rep. Gary Kreidt, R-New Salem, said if North Dakotans hadn't voted to create the fund in 2010, "that money would have been spent."
"To me, I look at it as money that's not there and should stay there and accumulate," he said, adding the Legislature has been generous in recent sessions and needs to tighten its belt. "I think most of the citizens of North Dakota probably look at that fund the same way."
Under the constitutional amendment approved by voters, Legacy Fund earnings accruing after June 30, 2017, must be transferred to the general fund.
The 2013 Legislature further defined "earnings" as net income excluding any unrealized gains or losses, but it remains a point of debate whether the investment earnings so far - about $219 million in realized and unrealized gains as of June 30 - should be available to the 2017 Legislature.
Rep. Keith Kempenich, R-Bowman, who chairs the Legacy and Budget Stabilization Fund Advisory Board, said he believes the intent was to leave the $219 million and whatever else is earned over the next year in the fund. He said lawmakers are "probably going to have to define that a little better," adding he's already aware of a likely bill draft that would use Legacy Fund income to shore up the state's property tax relief fund.
"We're getting into the time frame where it's going to be up for grabs," he said.
Lawmakers passed a bill last session that would have required Legacy Fund earnings to be invested back into the principal. But Gov. Jack Dalrymple vetoed the bill, which also would have barred the governor from considering Legacy Fund monies in spending proposals.
The revenue forecast lawmakers received last spring projected the Legacy Fund would collect $950 million in tax revenues this biennium. However, that assumed oil prices would increase from roughly $42 a barrel to $53 a barrel, which hasn't happened.
A "what-if" scenario presented by Legislative Council on Wednesday projects that collections will fall short by nearly $212 million if oil prices rise from about $30 a barrel to $37 a barrel and production drops from 1.16 million to 1 million barrels per day. That would be slightly offset by collections being $28 million over forecast at the start of the biennium.
Meanwhile, Office of Management and Budget Director Pam Sharp said it's "very likely" she will ask Moody's Analytics for a new revenue forecast in light of state tax revenues falling $112 million short of projections through the first four months of the two-year budget cycle that began July 1.
Sharp said she will make the decision after receiving November's tax revenue figures and before the Dec. 16 meeting of the Legislature's Budget Section.
"It's definitely looking like a trend," she said, adding sales tax collections driven by oil drilling and fracking activity aren't likely to rebound "until the price of oil bounces way back up."
If a new forecast projects a revenue shortfall of more than $300 million, the governor may have to tap the state's $675 Budget Stabilization Fund to cover appropriations. State agencies also would face budget cuts of up to 2.5 percent of their total appropriation - money that's already being spent, making it crucial to get a new forecast quickly to give them time to adjust if an allotment is necessary, Sharp said.
Reach Nowatzki at (701) 255-5607 or by email at firstname.lastname@example.org .